The annual Asian Development Outlook, generally launched in April, presents an analysis of developing Asia’s recent economic performance plus its prospects for the next two years.

This Update shows whether these forecasts were met, explaining divergence between forecasts and the actual outturn, and firms the forecasts for the next 18 months or so.

According to this Update's findings, dimming global growth prospects and soft domestic demand in the region’s two largest economies are slowing the pace of developing Asia’s expansion. Growth is now expected to slide from 7.2% in 2011 to 6.1% in 2012, with a bounce back to 6.7% in 2013.

The possibility of a shock emanating from the unresolved euro area sovereign debt crisis or a sharp fiscal contraction in the United States pose the biggest downside risks to the economy. Fortunately, most developing Asian economies have room to counteract such shocks with fiscal and monetary policy. However, there is currently no regionwide need for countercyclical policy intervention.

In the medium term, continued weakness in external demand and moderated growth in the People’s Republic of China and India mean economies in the region must diversify their growth drivers. Service sector development is poised to play a critical role in the region’s future growth.

Key messages

Developing Asia's growth is projected to expand by 6.1% in 2012 and by 6.7% in 2013, down significantly from 7.2% in 2011;

The PRC is forecast to grow by 7.7% this year and by 8.1% in 2013, considerably more slowly than the robust 9.3% growth of 2011;

India will see GDP growth slow to 5.6% in 2012 and bounce back to 6.7% in 2013;

Weakening growth momentum will temper price pressures, pushing inflation in the region down from 5.9% in 2011 to 4.2% in both 2012 and 2013;

The ongoing sovereign debt crisis in the euro area and the looming fiscal cliff in the United States (US) pose major risks to the outlook;

Developing Asia has no widespread, urgent need at the moment for countercyclical policy intervention;

Countries will have to rely more on enhancing productivity and efficiency to secure future prosperity;

Developing Asia's service sector is to play a growing role as economies that graduated from agriculture to industry evolve further into service economies;

A key challenge is to raise service sector dynamism by moving toward high-value modern services, such as information and communication technology, finance, and professional business services;

A vibrant service sector would have broad economic benefits, including the creation of jobs for women in particular, thus supporting inclusive growth;

Lack of human capital, inadequate infrastructure and restrictive regulations are major bottlenecks for developing a modern service sector.

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